Correlation Between RLJ Lodging and Pebblebrook Hotel

Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Pebblebrook Hotel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining RLJ Lodging and Pebblebrook Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RLJ Lodging Trust and Pebblebrook Hotel Trust, you can compare the effects of market volatilities on RLJ Lodging and Pebblebrook Hotel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in RLJ Lodging with a short position of Pebblebrook Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Pebblebrook Hotel.

Diversification Opportunities for RLJ Lodging and Pebblebrook Hotel

0.13

Correlation Coefficient

RLJ Lodging  Pebblebrook Hotel

Average diversification

The 3 months correlation between RLJ and Pebblebrook is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Pebblebrook Hotel Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pebblebrook Hotel Trust and RLJ Lodging is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on RLJ Lodging Trust are associated (or correlated) with Pebblebrook Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pebblebrook Hotel Trust has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Pebblebrook Hotel go up and down completely randomly.

Pair Corralation between RLJ Lodging and Pebblebrook Hotel

Assuming the 90 days trading horizon RLJ Lodging Trust is expected to under-perform the Pebblebrook Hotel. But the preferred stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 3.94 times less risky than Pebblebrook Hotel. The preferred stock trades about 0.0 of its potential returns per unit of risk. The Pebblebrook Hotel Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,311  in Pebblebrook Hotel Trust on August 31, 2024 and sell it today you would earn a total of  74.00  from holding Pebblebrook Hotel Trust or generate 5.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

RLJ Lodging Trust  vs.  Pebblebrook Hotel Trust

RLJ Lodging Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking indicators, RLJ Lodging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pebblebrook Hotel Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pebblebrook Hotel Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish technical and fundamental indicators, Pebblebrook Hotel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with RLJ Lodging and Pebblebrook Hotel

The main advantage of trading using opposite RLJ Lodging and Pebblebrook Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, Pebblebrook Hotel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Pebblebrook Hotel will offset losses from the drop in Pebblebrook Hotel's long position.

The idea behind RLJ Lodging Trust and Pebblebrook Hotel Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.